Because the layoffs of all employees by Flexible Flyer on the date it filed bankruptcy were shown to have been caused by the abrupt unavailablity of operating funds, which were completely unanticipated, the WARN Act's 60-day notice provision did not apply. The facts supported the "unforseeable business circumstances" exception to the notice requirement.

Procedural context:

Employees of Flexible Flyer (the Debtor) brought an adversary in its bankruptcy proceedings alleging liabilty under the WARN Act. After a bench trial, the Bankruptcy Court found that the Debtor's circumstances supported two exceptions to the notice requirement and thus there was no violation. The District Court affirmed the ruling finding that the factual determinations of were not clearly erroneous. The Fifth Circuit , reviewing for clear error, likewise affirmed the ruling in favor of the Debtor as to the "unforseeable business circumstances" exception and therefore did not address whether the faltering business exception, which the Bankruptcy Court found not as compelling, but also found was supported by the evidence..

Facts:

Flexible Flyer manufactured swing sets, hobby horses, go-carts, utility vehiciles and fitness equipment. It had been formed in 1997, by its parent company, Cerberus, to purchase assets out of another bankruptcy estate.It had not been profitable in any of its 8 years of operations. Flexible Flyer's operating capital came from two sources: CIT which factored its receivables and occasional infusions from the parent company. In 2005 it went through quite a storm. In April it had to recall 10,000 go-carts because of defective parts. Around the same time three major customers gave notice that they were deferring order of swing sets and another customer withheld $300,000.00 in payments for merchandise already shipped. The Debtor's witness testified that in August he had procured an agreement for earlier payment of invoices from Wal-Mart, obtained agreements to defer payments to some vendors, and that he remained optomistic that the company could weather the storm. One additional factor was that the sole competitor in the U.S. for swing set sales went into bankruptcy, leaving Flexible Flyer as the only US Manufacturer. However, the factor cut their advance amounts from 80% to 50% and then the parent refused to provide any funding. These actions resulted in the bankruptcy filing and immediate termination of all employees.
The employees argued that Flexible Flyer knew months in advance that they would have to layoff employees and violated the WARN Act by not sending out that notice. The Court heard the testimony of the CFO who sincerely believed that they could whether the storm and never thought that the parent company would refuse to provide funding as needed, since it had never refused in the past. The court found him credible. The fact that he worked until the end to turn things around was interpretted as good faith, well-grounded hope and thus a reasonable excercise of business judgment. The Bankruptcy Court found the circumstances supported both the unforeseeable circumstances exception and the faltering business exception.